ASB Meeting - AICPA...C section 500 is focused on the design and performance of audit procedures to obtain sufficient ... AAA 3. Texas . Audit Evidence ASB Meeting, October 28-31,

ASB Meeting

October 28-31, 2019

Prepared by: Hasty (October 2019) Page 1 of 27

Agenda Item 4

Audit Evidence

Objective of Agenda Item

To discuss feedback arising from the comment letters received in connection with the Exposure

Draft related to the proposed Statement on Auditing Standards, Audit Evidence (proposed SAS)

and initial proposed direction by the Task Force based on such feedback.

Task Force

Task Force members are:

Jay Brodish, PwC, Chair (supported by Kathy Healy)

Jim Burton, GT

David Finkelstein, SingerLewak (TIC)

Audrey Gramling, Oklahoma State University

Kristen Kociolek, GAO

Susan Jones, KPMG and IAASB Technical Advisor

Jeff Schaberg, Deloitte (supported by Sally Ann Bailey)

Eric Turner, CPA Canada and IAASB Member

Alan Young, EY and IAASB AEWG Correspondent Member

Bob Dohrer, Chief Auditor, AICPA, serves as an observer of the task force.

Background

The overall objective of the revisions to the proposed SAS is to address the evolving nature of

business and audit services, specifically 1) use of emerging technologies by both preparers and

auditors, 2) audit data analytics (ADA), 3) the application of professional skepticism, 4) the

expanding use of external information sources as audit evidence, and 5) more broadly, the

accuracy, completeness, and reliability of audit evidence.

On June 20, 2019, the Auditing Standards Board (ASB) issued the Exposure Draft related to the

proposed SAS. The Exposure Draft period ended September 18, 2019. The Task Force met in-

person on October 1-2, 2019 to begin analyzing the feedback from the comment letters and discuss

the recommendations outlined in this paper, including the preliminary proposed next steps.

Audit Evidence

ASB Meeting, October 28-31, 2019

Agenda Item 2 Page 2 of 27

Forty comment letters were submitted by responders (see Appendix for the full list of responders).1

Matters for the ASB’s Consideration

I. General

Substantially all of the comment letters expressed support of the overall objectives of the Exposure

Draft (“ED”) and the general direction the ED was going. There were three responders (Deloitte,

Rechtman, AAA) who, in the Task Force’s view, were not supportive of the proposed ED.

Despite the broad support, there were, however, numerous recommendations and suggestions to

make further refinements to the proposed SAS and a number of comment letters included drafting

recommendations which will need to be further evaluated by the Task Force. Some of the more

significant recommendations are summarized throughout the remainder of this Issues Paper.

In addition to feedback in relation to specific questions posed in the exposure draft, some concerns

were expressed in relation to: 1) whether the proposed ED went far enough (for example, in

relation to using automated tools and techniques), 2) whether a more broad and holistic approach

to updating the applicable standards should occur (e.g., addressing “historical” categories of

procedures which would result in conforming amendments (beyond AU-C section 500)), and 3)

creating differing definitions of evidence for audits under AICPA, PCAOB and IAASB standards.

There were also responders (Tennessee, NYS, Virginia, Texas, Montana, PwC, EY, Baker Tilly

(US), CohnReznick, Janover, Moss Adams) who expressed the view that the proposed revisions

will not result in significant changes in practice and made suggestions of what would be needed to

make the proposed SAS more relevant and impactful.

This Issues Paper summarizes some of the key issues identified by the Task Force and the Task

Force’s proposed direction to obtain feedback from the ASB. Although indicative drafting

suggestions are included in some cases to illustrate the proposed direction, the Task Force

recognizes that further drafting changes may be needed based on the Task Force’s detailed

evaluation of comments and the ASB’s feedback.

II. Attributes/Factors/Diagram

As explained in the Explanatory Memorandum to the Exposure Draft, the objective of extant AU-

C section 500 is focused on the design and performance of audit procedures to obtain sufficient

and appropriate audit evidence. The ASB’s deliberations in developing the proposed SAS

challenged whether the auditor’s judgment about the sufficiency and appropriateness of audit

evidence that is significantly based on the nature of audit procedures performed by the auditor is

still the most appropriate due to the expanding sources of information that might be used as audit

evidence and the expanding use of automated tools and techniques by both auditors and preparers.

Rather than continuing the current model, the focus of the proposed SAS was primarily on

understanding the attributes and factors to consider in evaluating information to be used as audit

1 Comment letters can be accessed at:

https://www.aicpa.org/research/exposuredrafts/accountingandauditing/proposed-statement-on-auditing-standards-

audit-evidence-comment-.html.

Audit Evidence



evidence as the basis for the auditor’s evaluation in AU-C section 500 as to whether sufficient

appropriate audit evidence has been obtained. This change in focus of the proposed SAS is

intended to be accomplished by establishing attributes and factors to consider in evaluating such

audit evidence.

The attributes and factors of information to be used as audit evidence were depicted throughout

the proposed SAS by a diagram (see paragraphs 5, A12, A34, and A45 of the proposed SAS). The

ASB believed that this diagram may be useful in illustrating the attributes and factors considered,

with the goal of enhancing the readability and application of the requirements in the proposed

SAS.

Questions to Responders on this Issue

Q3. Would the proposed attributes and factors expand the types and sources of information

considered by the auditor as audit evidence by lessening the emphasis on how audit evidence is

obtained (that is, “audit procedures performed”)? If not, please explain why.

Results:

Agree 19

Agree with Comments

5

1. NYS

2. GT

3. Illinois

4. BDO

5. UCF(4)

Disagree

9

1. Rechtman

2. AAA

3. Virginia

4. PwC

5. EY

6. Deloitte

7. Baker Tilly (US)

8. CohnReznick

9. Janover

Did not answer 7

Q4. Are there relevant attributes and factors of audit evidence missing from the proposed

SAS that should be considered by the auditor when evaluating the appropriateness of audit

evidence? If so, please describe them.

Results:

Complete 21

Complete with Comments

5

1. MACPA

2. AAA

3. Texas

Audit Evidence



4. Deloitte

5. Janover

Missing Attributes

6

1. Rechtman

2. RSM

3. UCF

4. Hunter

5. Janover

6. AICPA EBP

Did not answer 8

Q5. Does the diagram in the proposed SAS appropriately depict the attributes and factors that

the auditor considers in evaluating whether sufficient appropriate audit evidence has been

obtained?

Results:

Agree 9

Agree with Comments

9

1. Tennessee

2. RSM

3. UCF

4. Illinois

5. PwC

6. UCF Masters (3)

7. UCF Masters (2)

8. EY

9. CohnReznick

Disagree

17

1. Rechtman

2. NYS

3. Graham

4. AAA

5. Virginia

6. TIC

7. GT

8. GAO

9. KPMG

10. Texas

11. NSAA

12. BDO,

13. Baker Tilly (Global)

14. Kentucky

15. Baker Tilly (US)

16. Hunter

17. Janover

Did not answer 5

Audit Evidence



Comment Letters

Substantially all of the comment letters expressed support of the proposed change in focus of the

objectives of the proposed SAS from being driven by the performance of audit procedures to an

objective that also focuses on the evaluation of the information to be used as audit evidence (which

is the outcome of the application of the auditor’s procedures) by considering the attributes and

factors set out in the proposed SAS.

With respect to the diagram, 9 responders were supportive of including the diagram in the proposed

SAS and believed it was helpful; 9 responders who agreed with the use of the diagram had various

additional comments on how the diagram could be improved. On the other hand, 17 responders

found the diagram confusing and not helpful. In general, the responders had very mixed views on

the diagram.

The following is a summary of the responders’ more detailed comments and suggestions for

improvements.

A few responders (KPMG, PwC, Janover) expressed concern that the interaction between

attributes and factors and how the auditor designs and performs audit procedures is not

clear (for example, whether the auditor considers potential sources of audit evidence in

planning the audit).

While many responders expressed support for the use of the attributes and factors, others

(Baker Tilly (US), PwC, Deloitte, EY, CohnReznick, TIC) expressed a view that the

proposed SAS would not by itself result in the auditors expanding the types and sources

of evidence or have a significant impact on current practice.

Some responders (Rechtman, Virginia, TIC, GT, Kentucky) expressed concern that all

sources and all attributes as presented in the diagram seem to suggest that all of the

sources and attributes of audit evidence are always weighted or considered equally.

Others (AAA, Virginia, Baker Tilly (US)) noted it as incomplete as it did not include

relevance.

Several responders (AICPA EBP, KPMG, RSM, UCF (4)) requested more guidance on

obtaining evidence in an increasingly electronic environment, including the significance

of controls testing to consider reliability when data is maintained or transferred to the

auditor electronically. Three responders (AAA, KPMG, CohnReznick) suggested

clarification of the intent of paragraphs A26 and A27 related to authenticity is necessary,

in particular to explain how the audit might consider the integrity of information to be

used as audit evidence that is in electronic form.

Two responders (AAA, MACPA) suggested inclusion of the concept of timeliness in

describing relevance, with MACPA suggesting a closer linkage to the enhancing

qualitative characteristics noted in SFAC 8 to expand upon the concept of reliability.

Another respondent (Rechtman) suggested the timeliness and complexity of

management’s response in providing information are also relevant considerations.

In evaluating the sufficiency and appropriateness of audit evidence, the auditor is

required to consider relevance and reliability, of which the risk of bias is presented as a

Audit Evidence



factor. A few responders (AAA, RSM, GT, CohnReznick) suggested that the term “risk

of bias” is confusing and suggested using the term “susceptibility to bias” instead as this

phrase is used elsewhere in the AU-Cs.

Three responders (GT, PwC, Deloitte) raised issues with respect to including the concept

of auditor bias, questioning whether it was appropriately placed in AU-C section 500.

Two responders (Graham, UCF) noted that the consideration of the nature of the evidence

needs to be highlighted, including whether it is directly or indirectly related to the

assertion in the financial statements. For example, audit evidence directly relates to or

supports the numbers and disclosures in the financial statements under examination (for

example, source documents supporting the numbers and disclosures) or only indirectly

relates to the financials (for example, tests of controls, external information, peer

information, etc.).

Four responders (AAA, Virginia, KPMG, NSAA) expressed concerns over the potential

misinterpretation of the diagram and lack of alignment of the factors and attributes with

the requirements and application material.

A responder (KPMG) noted that the terms “attributes” or “attributes and factors” are not

used consistently throughout the standard.

Task Force Views

In light of responders’ views, the Task Force is proposing to revise the application material to

include many of the refinements as suggested by the responders, including responding as

appropriate to how the attributes of audit evidence are described; for example addressing the

recommendation to change “risk of bias” to “susceptibility to bias” and clarifying the guidance

about authenticity. Also, with respect to the comments on the relative weight of the attributes of

audit evidence, the Task Force proposes to address this comment by enhancing paragraph A4 of

the proposed SAS to explain that the evaluation of the attributes of evidence is not a formulaic

exercise, but is dependent on the auditor’s professional judgment. The Task Force also intends to

explore whether and how best to incorporate additional factors suggested by the responders, such

as the notion of direct and indirect audit evidence as well as the consideration of the precision and

timeliness of the information to be used as audit evidence. The Task Force acknowledges that

editorial changes are necessary to address comments raised by responders with respect to

inconsistent use of terminology, such as “attributes and factors” or “factors,” regarding which, the

Task Force plans to consider using one word or provide clarification of the different definitions

and usage. Any changes to the application material (including the ordering of material presented),

will need to be considered in light of the proposed changes described in Sections III and IV of this

paper.

With respect to the diagram or the “cube,” the Task Force recognizes that, while the diagram was

intended to be a graphical depiction of concepts in the proposed SAS and was intended to help the

auditor better visualize the proposed SAS, it has its limitations. For example, the diagram as drafted

does not depict important considerations such as 1) specific attributes related to relevance of the

information to be used as audit evidence, 2) professional skepticism, and 3) the consideration of

the results of the audit procedures. As a result of the varied feedback on the diagram, in particular

Audit Evidence



the concern over how it aligned with the requirements and guidance in the proposed SAS, the Task

Force recommends that it be removed from the requirements and application paragraphs of the

proposed SAS. The Task Force will consider whether the diagram (with revisions suggested by

commenters) would be a useful tool as an Exhibit (non-authoritative) to the proposed SAS or in

developing implementation material such as a “white paper” or other form of implementation

material in which more information can be provided to more fully explain the intended objective

of the diagram.

III. Definitions

In the proposed SAS, the ASB retained separate definitions of sufficiency and appropriateness.

The definition of appropriateness remained largely the same as the extant definition. However,

the ASB proposed to amend the definition of sufficiency to focus on the measure of the

persuasiveness of audit evidence rather than emphasizing the quantity of audit evidence. The ASB

believed that this was an important change because, with the array of automated tools and

techniques available to the auditor in today’s environment and the different nature and sources of

information available, the quantity of audit evidence, in itself, may not be determinative of its

sufficiency.


Q9. Are the changes to the definitions in extant AU-C section 500 appropriate? If not, please

explain why.

Results:

Appropriate 17

Appropriate with Comments

7 1. Virginia

2. KPMG

3. UCF Masters

4. BDO

5. UCF Masters (3)

6. CohnReznick

7. Hunter

Not Appropriate

11 1. Rechtman

2. MACPA

3. Graham

4. RSM

5. AAA

6. NYS

7. GAO

8. GT

9. PwC

10. Deloitte

11. Janover

Did not answer 5

Audit Evidence



Q10. Are there any other definitions that should be included in the proposed SAS? If so, describe

them.

Results:

Complete 20

Not Complete

11

1. Rechtman

2. Graham

3. AAA

4. RSM

5. UCF

6. Illinois

7. UCF Graduate

8. NSAA

9. UCF Masters (2)

10. Hunter

11. Janover

Did not answer 9

Comment Letters

While there was support for a conceptual shift to persuasiveness, several responders

(Graham, GT, GAO, UCF Masters (3), CohnReznick, Janover, PwC, Deloitte) expressed

significant concerns over changing the definition of “sufficiency” to solely refer to

persuasiveness and suggested restoring the definition of sufficiency to be described in

terms of “quantity.” Several responders (Graham, GT, GAO, KPMG, PwC, Deloitte)

believed that the definition of “sufficiency” should be retained because they believed

that: 1) quantity is an integral factor, (2) the change would result in differences with other

standards (IAASB and PCAOB) (GAO, PwC), and (3) the change would be confusing

because sufficiency is subsumed as part of the notion of persuasiveness and thus it raises

the issues of circularity (PwC, Graham, RSM).

Some responders (MACPA, RSM, Rechtman, PwC, GT) expressed concern about using

the terms sufficiency and persuasiveness interchangeably.

There was concern from 3 responders (Virginia, PwC, Deloitte) regarding the removal of

the term “quality” from the definition of appropriateness, thereby severing the important

“linkage” between the two concepts of sufficiency and appropriateness.

Four responders (KPMG, BDO, PwC, Deloitte) expressed concern about the proposed

definition of “audit evidence” because it is not consistent with the definitions by other

standard setters. Also, the definition is not consistent with how the term is used elsewhere

in the proposed SAS.

Four respondents (GT, PwC, Deloitte, Virginia) questioned why the definition of external

information sources was not consistent with the IAASB’s definition.

Audit Evidence



Twenty responders expressed their belief that no additional definitions were necessary in

the proposed SAS. The 11 respondents who did not believe the definitions were complete

variously suggested that terms such as persuasiveness, relevance, reliability,

completeness, accuracy, bias, professional skepticism and professional judgment could be

defined within the SAS.

Task Force Views

The Task Force considered the responders’ comments with respect to changing the definition of

sufficiency to focus on persuasiveness and that “quality” should be in the definition of

appropriateness. Therefore, the Task Force recommends substantially restoring the definitions of

sufficiency and appropriateness to the definitions in extant AU-C section 500 and repositioning

other application material into the definition. The Task Force also considered additional language

from PCAOB AS 1105.

However, the Task Force believes that the notion of the persuasiveness remains relevant because

other standards (for example, AU-C section 330) require that the higher the assessment of the risks

of material misstatement, the more persuasive the audit evidence the auditor is required to obtain.

To that point, the Task Force believes that additional application material is needed to explain (1)

that the product of appropriateness and sufficient audit evidence results in persuasive audit

evidence, a point acknowledged by some responders, and (2) that “quantity” as a measure of

sufficiency does not necessarily mean physical quantity but rather refers to the “amount” of audit

evidence.

Indicative Drafting Suggestions

Definition Application Material

Audit evidence. All the Iinformation used by

the auditor, whether obtained from the

performance of audit procedures or other

sources, in arriving at the conclusions on

which the auditor’s opinion is based. Audit

evidence consists of both information that

corroborates the assertions in the financial

statements and information that contradicts

such assertions.

AXa. Audit evidence is cumulative in nature

and is obtained primarily through the

performance of one or more audit procedures

on information obtained during the course of

the audit on information to be used as audit

evidence. Audit evidence may be obtained

from other sources, including external

information sources. The auditor may also

use automated tools and techniques as a

means to obtain audit evidence. The audit

evidence that is needed at the relevant

assertion level depends on the auditor’s

assessment of the risk of material

misstatement.

AXbA2The nature of audit procedures the

auditor performs on information to obtain

audit evidence may range from simple to

Audit Evidence



more extensive procedures, and the time

required to perform such procedures varies

accordingly.AXbThe nature of audit

procedures the auditor performs in order to

use information as audit evidence may

depend on its source, and may range from

simple to more extensive procedures. For

example, when using information from an

external information source, it may be

relatively easy to obtain the information and

the auditor’s considerations are largely

focused on considering the source of that

information. On the other hand, more

extensive procedures, including procedures

to test controls, may be necessary when the

auditor intends to use information generated

internally from the financial reporting

system as audit evidence. The nature, timing

and extent of audit procedures performed on

information also influences the

persuasiveness of the audit evidence obtained.

For example, inspection or observation may

provide more persuasive audit evidence than

inquiry about existence.

AXcA6. Audit evidence is information to

which audit procedures have been applied.

Audit evidence may be obtained by the

auditor

a. during the course of the current

year audit.

b. from other sources, such as

previous audits, provided that

the auditor has determined

whether changes have occurred

since the previous audits that

may affect its relevance to the

current audit.2

c. based on the results of applying

the firm’s quality control

2 Paragraph .10 of AU-C section 315.

Audit Evidence



procedures for client acceptance

and continuance to the

engagement.

AXdA7.In some cases, the absence of

information is used by the auditor and,

therefore, also constitutes audit evidence.3 For

example, when considering whether

contradictory information may exist regarding

the entity’s recorded warranty provision, the

absence of sales returns of the product in

question may be evidence supporting

management’s recorded amount.

Appropriateness (of audit evidence). The

measure of the quality relevance and

reliability of audit evidence, that is, its

relevance and reliability in providing

support for the conclusions on which the

auditor’s opinion is based.

[Source: Extant AU-C section 500 with

elevated application material that appears in

PCAOB AS 1105.06]

AXe. As explained in AU-C section 200, the

sufficiency and appropriateness of audit

evidence are interrelated. Together they

affect the persuasiveness of audit evidence.

The auditor’s conclusion of whether

sufficient appropriate audit evidence has

been obtained in accordance with AU-C

section 330 is both at the relevant assertion

level as well as the financial statement level.

The evidence that is needed is affected by the

risk of material misstatement. As the risk

increases, the need for more persuasive

evidence needed also increases. For

example, ordinarily more persuasive

evidence is needed to respond to significant

risks.

Sufficiency (of audit evidence). The measure

of the quantity persuasiveness of audit

evidence. The persuasiveness quantity of

audit evidence necessary is affected by the

auditor’s assessment of the risks of material

misstatement and the quality of the audit

evidence obtained (that is, its

appropriateness).

AXf. When considering the persuasiveness of

audit evidence, the amount of audit evidence

obtained may be a factor for the auditor to

consider. As the quality of evidence

increases, the need for additional evidence

decreases. However, obtaining more of the

same type of audit evidence may not cannot

compensate for its lack of appropriateness.

[more work needed to determine how this

should be positioned (i.e., as guidance to the

definitions or to integrate with the application

3 Paragraph .A32 of AU-C section 200.

Audit Evidence



[Source: Extant AU-C section 500 (with

minor edits) with elevated application

material that appears in PCAOB AS 1105.05]

material in paragraphs A9-A11 that are

tagged to the requirement in paragraph 9.]

IV. Flow of Requirements

As explained above, the focus of the proposed SAS was primarily on understanding the attributes

and factors of the information to be used as audit evidence. The attributes and factors were

reflected in the proposed SAS by the addition of new requirements and application material. More

specifically, the proposed SAS contained an overarching requirement (paragraph 9 of the proposed

SAS) that would require the auditor to evaluate the information to be used as audit evidence as a

basis for concluding whether sufficient appropriate audit evidence has been obtained as required

by AU-C section 330. This overarching requirement was followed by separate requirements

(paragraphs 10–12 of the proposed SAS) for the auditor to consider the individual attributes and

factors of audit evidence — that is, its relevance and reliability, its sources, and whether the

information corroborates or contradicts the assertions in the financial statements.


Q2. If implemented, would the new requirements and application material assist the auditor in

more effectively evaluating whether sufficient appropriate audit evidence has been obtained? If

not, please explain why.

Results:

Agree 25

Agree with Comments

5

1. NYS

2. AAA

3. GT

4. PwC

5. Moss Adams

Disagree

7

1. Rechtman

2. Graham

3. Virginia

4. KPMG

5. Montana

6. Deloitte

7. ABA

Did not answer 3

Comment Letters

Audit Evidence



Thirty responders expressed support for establishing requirements and application material to

address the attributes and factors of information to be used as audit evidence, including responders

who made suggestions. However, as noted in Section I above, a number of those responders did

not believe the proposed SAS would markedly change current practice. Seven responders

questioned whether the proposed SAS provided enough guidance to assist auditors in concluding

that sufficient appropriate audit evidence has been obtained. Other matters that were raised by

responders included:

The ABA expressed a view that more guidance would be needed for community banks in

relation to CECL.

GT, KPMG and the AICPA’s EBP Expert Panel suggested more guidance was needed to

address how auditors consider environments that are virtually paperless. GT and Moss

Adams were also of the view that more guidance is needed to allow auditors to think

differently about audit evidence obtained from emerging tools and technologies (see also

Section V).

There were also concerns expressed by a few responders about the flow of the requirements. More

specifically:

A responder (Deloitte) expressed concern that the construct of the separate requirements

which the auditor would be required to “consider’ in making the evaluation whether

sufficient appropriate audit evidence has been obtained was not clear. In particular,

Deloitte expressed the view that the term “consider” seems to convey a work effort that

might be too weak, and instead suggested using a more actionable term such as “take

into account.”

Three responders (PwC, Moss Adams, Graham) noted that the interaction between the

requirement to consider whether the results of the audit procedures are reasonably

expected to provide a basis for concluding on the sufficiency and appropriateness of

audit evidence obtained and the other attributes and factors of audit evidence was not

clear.

KPMG questioned the relationship between paragraph 12 of the proposed SAS in which

the auditor would be required to consider whether the information to be used as audit

evidence corroborates or contradicts the assertions in the financial statements and

paragraph 14 in which the auditor would be required to resolve any inconsistencies in, or

doubts over the reliability of, audit evidence.

Task Force Views

With respect to the comment that the proposed SAS does not provide enough guidance to assist

auditors in concluding that sufficient appropriate audit evidence has been obtained, the Task

Force notes that the intent of the project was not to do that. Rather, the intent was to provide a

framework that would assist auditors in evaluating whether sufficient appropriate audit evidence

has been obtained, whereas concluding that sufficient appropriate audit evidence has been

obtained is addressed by AU-C Section 330.

Audit Evidence



The Task Force recommends that the requirements with respect to the attributes and factors be

reformulated to more effectively convey the interaction among the attributes of audit evidence,

including the results of audit procedures. As a result, the Task Force has drafted proposed language

which both helps address these concerns and also is likely necessary due to the proposed removal

of the “cube” from the requirements and application paragraphs in the final standard.

Indicative Drafting Suggestions:

Sufficient Appropriate Audit Evidence

9. As a basis for concluding whether sufficient appropriate audit evidence has been obtained

as required by AU-C section 330, the auditor should evaluate the information to be used as

audit evidence in accordance with paragraphs 10–12 of this proposed SAS. (Ref: par. A9–

Error! Reference source not found.A11.)

Evaluating Information to Be Used as Audit Evidence

Relevance and Reliability

10. The auditor In should evaluating evaluate information to be used as audit evidence in

accordance with paragraph 9, the auditor should consider by taking into account the

source of the information, the relevance and reliability of the information, and whether

such information is corroborative or contradictory to the assertions in the financial

statements.

This evaluation also includes consideration of whether:

The auditor should consider whether the information is sufficiently precise and

detailed for the information is sufficiently reliable auditor's purposes, and

Including as it is necessary to obtaining audit evidence about evaluate the accuracy

and completeness of the information and.

Sources

11. In evaluating information to be used as audit evidence in accordance with paragraph 9, the

auditor should consider the sources of the information to be used as audit evidence. (Ref: par.

A34–A44)

Corroborative or Contradictory Information

12. In evaluating information to be used as audit evidence in accordance with paragraph 9 the

auditor should consider whether such information corroborates or contradicts the assertions in

the financial statements. (Ref: par. A45–A48)

13. When designing and performing audit proceduresIn evaluating information to be used as

audit evidence, the such auditor should consider whether the results of the audit procedures

are reasonably expect toprovide a basis for concluding on the sufficiency and appropriateness

of audit evidence obtained. (Ref: par. A49–A72)

Audit Evidence



Inconsistency in, orDoubts Over the Reliability of Information to be Used as Audit

Evidence and Inconsistencies in Audit Evidence

14. The auditor should determine whatwhether modifications or additions to audit procedures

are necessary to resolve doubts about the reliability of information to be used as audit

evidence and any inconsistencies, including circumstances in which the matter and

should consider the effect of the matter, if any, on other aspects of the audit if

a. Information to be used as audit evidence obtained from one source is inconsistent

with that obtained from another or contradicts an assertion in the financial

statements

b. The results of an audit procedure are inconsistent with the results of another

audit procedure

and consider the effect of these circumstances, if any, on other aspects of the audit.

V. Automated Tools and Techniques

A key objective of this project was to assess whether revisions to extant AU-C section 500 are

appropriate to address considerations related to automated tools and emerging technologies. In

view of the pace of change surrounding use of technology in today’s business world and the impact

on both preparers and auditors, the ASB determined that such revisions were appropriate and

included several examples of the use of automated tools and techniques in the application material

of the proposed SAS. The intent of these additional examples was to illustrate how automated tools

and techniques may be used by the auditor and, thereby, recognize more prominently in the

proposed SAS the increased use of automated tools and techniques.


Q6. Please provide your views on whether the examples in the proposed SAS are useful to

auditors. If the examples are not useful, please explain why?

Results:

Useful 12

Useful with Comments

17

1. Florida

2. AAA

3. RSM

4. Virginia

5. GT

6. GAO

7. Texas

8. UCF Masters

9. BDO

10. UCF Masters (3)

11. UCF Masters (2)

12. Deloitte

Audit Evidence




14. CohnReznick

15. Janover

16. UCF (4)

17. Hunter

Not Useful

8

1. Rechtman

2. Graham

3. KPMG

4. NYS

5. PwC

6. EY

7. Kentucky

8. Moss Adams

Did not answer 3

Q11. Please provide your views on whether (a) the guidance added to the application material of

the proposed SAS to explain the implications and role of automated tools and techniques in the

current audit environment is beneficial and (b) the proposed SAS is enhanced by using illustrations

of automated tools and techniques; that is, whether the proposed SAS is more relevant to audits

conducted in today’s environment.

Results:

Agree 14

Agree with Comments

14

1. Tennessee

2. MACPA

3. Florida

4. AAA

5. RSM

6. Virginia

7. Crowe

8. GAO

9. Texas


11. EY


13. UCF (4)

14. Janover

Disagree

7

1. Rechtman

2. NYS

3. Graham

4. KPMG

5. PwC

6. Deloitte

7. Moss Adams

Audit Evidence



Did not answer 5

Comment Letters

Responders expressed broad support for examples to promote awareness of and potential

use of automated tools and techniques.

Three responders (NYS, GAO, UCF (4)) expressed caution that the proposed SAS

should not be perceived as requiring the use of automated tools and techniques (since

smaller firms may not need to adopt these technologies or have the capacity to do so).

One respondent (Graham) noted an overemphasis on indirect audit procedures as

evidence (including the use of audit data analytics) and suggested the material would be

better placed in AU-C section 520.

All (14) of the commenters that responded as “agree with comments” suggested more

guidance is needed on how to use these tools appropriately (for example, by considering

the tool itself, controls, data, professional judgment) to safeguard against potential

overreliance.

Several responders (EY, Moss Adams, UCF, BDO, KPMG, PwC, Deloitte, Baker Tilly

(US)) suggested more guidance to help auditors in evaluating the evidence that is

obtained from using these tools, together with a more holistic consideration of how the

standards prescribe types of procedures and whether this is still relevant in light of the

use of automated tools and techniques.

Task Force Views

The Task Force acknowledges that additional examples and guidance might be helpful to better

explain the use of automated tools and techniques in an audit. Also, the Task Force agrees that

further edits and refinements to the examples will improve the proposed SAS. Finally, the Task

Force agrees the application material could acknowledge that the use of automated tools and

techniques is not required, but also believes that the proposed SAS should highlight the potential

benefits of using automated tools and techniques, consistent with the ASB’s previous discussions.

The Task Force recognizes that including examples to illustrate all situations whereby automated

tools and techniques would be helpful to the auditor is not feasible within the proposed SAS.

Consequently, the Task Force acknowledges that developing additional implementation material

that would be issued concurrently, or subsequent to, with the final SAS will also be helpful to

auditors. With respect to the comment that more guidance is needed in relation to how to use

automated tools and techniques appropriately, the Task Force will give further consideration to

guidance that assists auditors in thinking about how the attributes and factors are to be considered

when automated tools and techniques are used, but acknowledges that detailed guidance on using

the tools themselves is likely outside of the scope of this project.

A suggestion was proposed by the Task Force that the AICPA develop a dedicated webpage

(portal) within the AICPA’s website where related implementation guidance or materials

developed could be published and accessible to users develop in support of the proposed SAS. The

Audit Evidence



Task Force believes the combination of this timely guidance, a reminder that the Audit Data

Analytics Guide provides additional guidance, and targeted editing of existing examples in the

current ED would be responsive to feedback provided by the responders.

VI. External Confirmations

In the conforming amendments to the proposed SAS, the ASB included an amendment that would

eliminate the requirement that a confirmation be written; that is, an oral confirmation would be

permissible under AU-C section 505, External Confirmations. The ASB decided that an oral

confirmation may be as reliable as a written confirmation in particular circumstances, provided

that the oral request is made to an appropriate individual, a response is knowingly provided by an

appropriate individual, and the response is documented by the auditor.


Q12. Do you agree that AU-C section 330 combined with the attributes and factors in the

proposed SAS would assist the auditor in concluding whether an oral confirmation should be

supplemented by a written confirmation of the information?

Results:

Agree 8

Agree with Comments

15

1. NYS

2. Michigan

3. RSM

4. Virginia

5. Crowe

6. GT

7. GAO

8. Texas

9. NSAA

10. BDO

11. UCF Masters (4)


13. EY


15. UCF Masters (2)

Disagree

10

1. Tennessee

2. Rechtman

3. MACPA

4. AAA,

5. KPMG

6. Illinois

7. PwC

8. UCF Masters (3)

9. Deloitte

Audit Evidence



10. CohnReznick

Did not answer 7

Comment Letters

Twenty-three responders were supportive of making an oral confirmation permissible provided

that it met the conditions explained in the proposed SAS, although some of these responders

believed more guidance would be needed to help auditors determine when it was appropriate to

rely on an oral conformation. Ten responders disagreed with the proposal to make oral external

confirmations permissible. In disagreeing, responders cited that there might be unintended

consequences of making the change, including an impact on audit quality if oral confirmations

were obtained when more persuasive evidence was needed, and also noted there were

inconsistencies between making an oral confirmation permissible and other guidance within the

proposed SAS (for example, paragraph A27).

Many responders (RSM, AAA, Virginia, Crowe, GT, Baker Tilly (Global), EY, Baker Tilly (US))

suggested guidance that might assist auditors in determining when it might be appropriate to use

an oral confirmation rather than a written confirmation, with views that written confirmation would

continue to be needed for higher risk or more significant accounts.

Task Force Views

The Task Force recommends not making the conforming amendments to AU-C section 505 as

proposed. However, the Task Force will consider whether further guidance might be helpful and

responsive to feedback to explain when an oral confirmation may be used and to address the

auditor’s consideration of responses when inquiries are made of external parties.

VII. Documentation

Paragraph 3 of the proposed SAS explains that the application of this proposed SAS assists the

auditor in fulfilling the auditor’s responsibilities in other AU-C sections and that this proposed

SAS is to be read in conjunction with other AU-C sections that address various auditor

responsibilities. AU-C section 230, Audit Documentation, provides requirements and guidance

with respect to circumstances in which it is appropriate to prepare audit documentation. The ASB

believed that this proposed SAS does not establish audit documentation requirements beyond those

audit documentation requirements that already exist in AU-C section 230 and other AU-C sections.


Q15. Do you believe that the application of this proposed SAS would result in audit documentation

requirements beyond those in AU-C section 230 and other AU-C sections? If so, describe how the

proposed SAS is perceived to expand the audit documentation requirements existing in AU-C

section 230 and other AU-C sections.

Results:

Audit Evidence



No effect

16

1. NYS

2. Michigan

3. Virginia

4. UCF

5. GT

6. GAO

7. Texas,

8. UCF Masters

9. NSAA

10. Montana

11. CliftonLarsen

12. UCF Masters (2)


14. CohnReznick

15. UCF Masters (3)

16. Hunter

More Documentation (Including Potential

Perceptions)

10

1. Rechtman

2. MACPA

3. Florida

4. TIC

5. Illinois

6. BDO


8. EY

9. Deloitte

10. Kentucky

Suggestions that clarity is needed

7

1. Tennessee

2. Graham

3. RSM

4. Crowe

5. KPMG

6. PwC

7. Janover

Did not answer or neutral 7

Comment Letters

Responders expressed mixed views about whether the proposed SAS would create new

documentation requirements. Some responders (10) expressed concern that, as drafted,

the proposed SAS could be perceived as requiring additional documentation, for example

auditors might be expected to document how they considered the individual attributes

when evaluating information to be used as audit evidence.

Some responders (Tennessee, Graham, Crowe, GT, KPMG, RSM, PwC, Janover) also

suggested that more clarity was needed within the proposed SAS as to the ASB’s

expectations and interaction with AU-C section 230. For example, a focus could be on

Audit Evidence



examples of what might be significant judgments in relation to evaluating information to

be used as audit evidence, including the resolution of contradictory evidence.

Task Force Views

Given the mixed views expressed by responders and the request to add additional application

material to better explain the interaction between the proposed SAS and other standards,

specifically, AU-C section 230, the Task Force proposes to include additional application material

to address the audit documentation issue.

Indicative Drafting Suggestions:

Documentation [placement to be considered (e.g., in Scope section or application material]

AX. Other AU-C sections address audit documentation. For example:

AU-C section 230 requires the auditor to prepare audit documentation that is sufficient

to enable an experienced auditor, having no previous connection with the audit, to

understand, among other matters, the results of the audit procedures performed, and the

audit evidence obtained.

AU-C section 330 requires the auditor to document, among other matters, the results

of the audit procedures, including the conclusions when such conclusions are not

otherwise clear.

While the nature and extent of documentation in relation the auditor’s basis for concluding

whether sufficient appropriate audit evidence has been obtained is a matter of professional

judgment, the auditor is not required to document an evaluation of the attributes of

information to be used as audit evidence.

VIII. Linkage to other Standards

In paragraphs 1–5 of the proposed SAS, the ASB included additional content to articulate the

relationship between the proposed SAS and other AU-C sections, including AU-C sections

315, Understanding the Entity and Its Environment and Assessing the Risks of Material

Misstatement, 330, Performing Audit Procedures in Response to Assessed Risks and

Evaluating the Audit Evidence Obtained, and 700, Forming an Opinion and Reporting on

Financial Statements. Other AU-C sections require auditors to draw conclusions about the

work performed by the auditor in accordance with each of those AU-C sections. The ASB

believed that the proposed SAS would assist the auditor in forming those conclusions by

providing the attributes and factors that the auditor would consider in concluding whether the

auditor has obtained sufficient appropriate audit evidence for the auditor’s intended purpose.


Q1. Please provide your views on whether the revised scope section of the proposed SAS

clearly explains the relationship between the proposed SAS and other AU-C sections, including

Audit Evidence



AU-C sections 315, 330, and 700. If the scope section does not clearly explain the relationship,

please indicate why.

Results:

Agree 20

Agree with Comments

8

1. MACPA

2. NYS

3. RSM

4. GT

5. GAO

6. PwC

7. BDO

8. AICPA EBP

Disagree

3

1. Illinois

2. UCF Masters

3. Deloitte

Did not answer 9

Comment Letters

Twenty responders were supportive about how the scope explains the relationship with

other standards.

Three responders (UCF Masters, Deloitte, Illinois) who disagreed expressed the view that

the objective of the standard and linkage to AU-C sections 315 and 700 warrants

clarification. In particular, Deloitte suggested merely cross referencing to other standards

was not sufficient in order for auditors to appropriately understand how the various

standards interact and suggested further changes to enhance the interaction.

One responder (NYS) noted that conforming changes to other AU-Cs may be necessary

to illustrate their relationship with AU-C section 500 and another responder (GT)

suggested certain material would be better presented in AU-C section 330.

Other responders (MACPA, RSM, Illinois, UCF Masters, BDO, AICPA EBP) suggested

reference to other AU-Cs would be appropriate (for example, AU-C sections 200, 520,

530, 540, 570, 703), with another (GAO) suggesting a broader reference to other AU-Cs

would be helpful.

Task Force Views

The Task Force notes the comments were largely supportive of the material, but will revisit

whether changes to the introductory material as well as the objective are needed to align with

other changes proposed to the ED.

IX. Professional Skepticism

Audit Evidence



As explained in the Exposure Draft, the proposed SAS addresses the topic of professional

skepticism as follows:

a. It incorporates the definition of professional skepticism as set out in AU-C section 200.

b. It addresses these issues by interweaving the concepts surrounding professional

skepticism throughout the proposed SAS.

c. It explains auditor performance that would demonstrate the application of professional

skepticism when obtaining and evaluating sufficient appropriate audit evidence.


Q7. Do you agree with the approach taken by the ASB in addressing the topic of professional

skepticism? If not, please explain why.

Results:

Agree 19

Agree with Comments

12

1. Tennessee

2. MACPA

3. AAA

4. RSM

5. Virginia

6. GT

7. Illinois

8. UCF Graduate

9. UCF Masters (2)

10. NSAA

11. BDO

12. USF Masters (3)

Disagree

3

1. NYS

2. ABA

3. Graham

Did not answer 6

Q8. If the guidance in the proposed SAS is implemented, would the application of professional

skepticism be enhanced and more clearly understood in evaluating whether sufficient appropriate

audit evidence has been obtained? If not, please explain why?

Results:

Enhanced 17

Enhanced with Comments

14

1. Tennessee

2. Rechtman

3. MACPA

4. NYS

Audit Evidence



5. Graham

6. Virginia

7. GT

8. GAO

9. PwC,

10. UCF Masters

11. NSAA


13. Deloitte

14. Hunter

Not Enhanced 2

1. ABA

2. AAA

Did not answer 7

Comment Letters

Most of the responders expressed support for the overall approach, and some responders

(Tennessee, AAA, RSM, Crowe, UCF Masters, BDO, NSAA, NYS) requested more

guidance, such as providing more examples to apply the concept of professional

skepticism.

Two responders (NYS, MACPA) provided suggestions to make the concept of

professional skepticism more prominent within the proposed SAS.

Three responders (GT, PwC, Deloitte) expressed concerns over how auditor bias was

positioned, the unintended consequences of “defining” such terms in the application

material, and whether it is appropriate to address in AU-C section 500 or elsewhere,

including consideration of other current standard-setting projects addressing bias.

Task Force Views

The Task Force will consider whether additional application material might be necessary.

However, the Task Force suggests that further guidance regarding professional skepticism beyond

what was included in the proposed SAS might be better addressed in other performance standards

such as AU-C section 315, AU-C section 540, etc. The Task Force seeks input from the ASB as it

relates to the concept of auditor bias, including where this material may be best placed if retained.

X. Relocation of Management Specialists

The proposed SAS included the sources of audit evidence as one of the factors that the auditor

would be required to consider in making such evaluations. In considering how the subject of

management’s specialists would be included in the proposed SAS, the ASB concluded that the

content dealing with management’s specialists contains specific requirements and application

material that are unique and incremental to this specific topic.

As a result, the ASB proposed relocating the content dealing with management’s specialists from

AU-C section 500 to AU-C section 501, Audit Evidence — Specific Considerations for Selected

Audit Evidence



Items, or to a separate new standard, with no significant changes to the associated requirements or

application material. The ASB will also subsequently consider the PCAOB’s standard Auditor’s

Use of the Work of Specialists as a separate project of the ASB.


Q13. Is relocation of the content dealing with management’s specialist from AU-C section 500 to

AU-C section 501 or to a separate new standard appropriate? If not, please explain why. Q13

Results:

Agree 23

Agree with Comments 2

1. Graham

2. Deloitte

Disagree

4

1. EY

2. PwC

3. UCF Masters (3)

4. Hunter

Indifferent or did not answer 11

Q14. If you agree that relocation is appropriate, what are your views about whether the

management’s specialist content should be addressed in AU-C section 501 or in a separate new

standard? Q14

Results:

Move to 501

11

1. Tennessee

2. MACPA

3. Florida

4. Virginia

5. Texas

6. PwC

7. UCF Masters (2)

8. NSAA,

9. BDO

10. Montana


Separate Standard

11

1. Rechtman

2. Graham

3. Michigan,

4. RSM

5. TIC

6. UCF

7. GT

8. Illinois

Audit Evidence



9. CliftonLarsen

10. UCF Masters (4)

11. UCF Masters (5)

Indifferent, remain in AU-C section 500, or

did not answer 18

Comment Letters

Responders expressed broad support for the relocation of the material from AU-C section 500 to

either AU-C section 501 or a separate standard.

Task Force Views

The Task Force will work with the AITF in terms of what would be the best option of relocating

the content dealing with management specialists.

Items Presented

Agenda Item 4 – Issues Paper

Agenda Item 4A—Exposure Draft

Mr. Brodish will refer to the Agenda Item 4 in leading the discussion.

Current Plan - Next Steps

December 6, 2019 ASB conference call – Discussion of draft revisions to the revised

proposed SAS

January 9-13, 2020 ASB meeting – Potential final draft and request the ASB to vote the

proposed SAS as a final standard.

Audit Evidence



Appendix

The following is the list of the comment letters received.

1. Tennessee Department of Audit, Division of State Audit (“Tennessee”)

2. Rechtman CPA (“Rechtman”)

3. Maryland Association of Certified Public Accountants (“MACPA”)

4. New York State Society of Certified Public Accountants (“NYS”)

5. American Bankers Association (“ABA”)

6. Lynford Graham (“Graham”)

7. Florida Institute of Certified Public Accountants (“Florida”)

8. Auditing Section of the American Accounting Association (“AAA”)

9. Michigan Office of the Auditor General (“Michigan”)

10. The Virginia Society of CPAs (“Virginia”)

11. RSM US LLP (“RSM”)

12. Virginia Auditor of Public Accounts (“Virginia Auditor”)

13. AICPA Technical Issues Committee (“TIC”)

14. Crowe LLP (“Crowe”)

15. University of Central Florida (“UCF”)

16. Grant Thornton LLP (“GT”)

17. U.S. Government Accountability Office (“GAO”)

18. KPMG LLP (“KPMG”)

19. Illinois CPA Society (“Illinois”

20. Texas Society of CPAs (“Texas”)

21. Intentionally Omitted

22. UCF Graduate Accounting Program (“UCF Graduate”)

23. PricewaterhouseCoopers LLP (“PwC”)

24. UCF Masters (“UCF Masters”)

25. National State Auditors Association (“NSAA”)

26. BDO USA, LLP (“BDO”)

27. Montana Legislative Audit Division (“Montana”)

28. CliftonLarsonAllen LLP (“CliftonLarsen”)

29. University of Central Florida (3) (“UCF (3)”)


31. Baker Tilly International (“Baker Tilly (Global)”)

32. Ernst & Young LLP (“EY”)

33. Deloitte & Touche LLP (“Deloitte”)

34. Kentucky Society of Certified Public Accountants (“Kentucky”)

35. Baker Tilly Virchow Krause, LLP (“Baker Tilly (US)”)

36. CohnReznick


38. Hunter College (“Hunter”)

39. Janover LLC (“Janover”)

40. Moss Adams LLP (“Moss Adams”)

41. AICPA Employee Benefit Plans Expert Panel (“AICPA EBP”)

Documents

ASB Meeting - AICPA...C section 500 is focused on the design and performance of audit procedures to obtain sufficient ... AAA 3. Texas . Audit Evidence ASB Meeting, October 28-31,